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Small-lender trade groups blast GSE plan

Two community mortgage-lender trade associations say they
have serious concerns about a recent report on how a government-sponsored
enterprise (GSE) reform bill is evolving in the U.S. Senate Committee on
Banking, Housing & Urban Affairs.

The nonbank Community Home Lenders Association (CHLA) and
the Community Mortgage Lenders of America (CMLA) — two small-lender associations
that previously aligned with progressive groups against past GSE reform
proposals — say they won’t support a bill that creates several new
chartered enterprises and moves far away from the current system dominated by Fannie
Mae and Freddie Mac.

“Some of the directions that we are seeing are problematic
for small-lending groups, and are problematic for affordable housing groups in
terms of a commitment to low- and moderate-income borrowers,” CHLA Executive
Director Scott Olson told Scotsman Guide News. “If you have significant
opposition from one or both of those groups, then that will be a problem in
terms of getting a bi-partisan bill passed.”

The Senate banking committee has produced a draft bill. Based on unnamed sources
familiar with the evolving document, American Banker reported this week that
that the bill envisions a multi-guarantor system, where several private
companies would purchase and securitize mortgages.

Notably, according to an American Banker article published
on Wednesday, this would not adopt a utility model for the GSEs. Under a
utility model, Fannie Mae and Freddie Mac’s returns would be closely regulated,
and they wouldn’t have the incentive to take many business risks.

“The FHFA’s plan would reconstitute Fannie and Freddie from
wards of the state to private shareholder-owned corporations,” the American
Banker reported. The GSEs would be put into receivership and their charters
would be repealed.

“However, sources say the Senate proposal provides that the
remnants of Fannie and Freddie could emerge with similar characteristics as the
two current companies,” the article continued. “They would be remade into
private guarantors and allowed to build capital from investors. It also
envisions that Fannie and Freddie’s successors and other competing guarantors
would issue a single mortgage-backed security using the Common Securitization
Platform that Fannie and Freddie are currently building under the oversight of
the FHFA.”

The article also reported that Senators were debating how
many guarantors to allow, with some arguing for more than 10.

The bill hasn’t been released, and the committee has not
held any recent public hearings on GSE reform. Olson and CMLA’s Acting
Executive Director Rob Zimmer said they haven’t yet seen the text of the bill.

Both trade groups are concerned that a system with multiple
private companies could come to be dominated by nation’s biggest banks. Olson
said the heavy competition might also result “in a race to the bottom” where risky
loans get sold and securitized with some form of a government guarantee. Small-lender trade groups want assured equal access to the secondary market, with no price discrimination
through volume discounts.

"The six small lender organizations testifying in front
of Senate banking committee in July 2017 aligned quite well on what needs to be
done in the secondary mortgage market: Make these guys utilities, probably more
guarantors is not a good idea,” Zimmer said during a telephone interview. “To
my knowledge, none of these organizations have been brought into the
discussions on this new proposal, and neither have civil rights and consumer
organizations."